Income

Oracle returned to the bond market yesterday, just five months after its $18 billion September jumbo deal, finally removing the cloud of uncertainty around supply that has hung over the credit.

Foreign exchange markets have taken centre stage again in recent weeks. President Trump’s apparent indifference to the relatively steep dollar depreciation trend of late has raised a few eyebrows and added fuel to the dollar fire.

Collateralised loan obligations, or CLOs, have become an increasingly popular asset class within global fixed income.

The turbulent start to 2025 has sent many investors seeking alternatives to US assets, but in our view European fixed income can offer more than just diversification.

While tariffs have done meaningful damage to the economic outlook and raised volatility in rates markets, the softening of the US stance has restored confidence in credit returns for 2025.

The question for investors now is how much of the macro risk remains, and how well that risk is being reflected in asset valuations.

The high yield bond market reopened in Europe last week after a three-week hiatus triggered by the US tariffs fallout. Aside from a private placement by Very Group on April 10, the last public European high yield deal was from UK homebuilder Miller Homes on March 31, so we were interested to see how the first post-tariffs deal would be received.

One of the key reasons we see credit continuing to outperform government bonds over the medium term is corporate fundamentals.

Will volatility in government bonds continue? Has fixed income seen “peak ESG”? And what will be the biggest driver of returns?

Last week’s rise in UK government bond yields prompted the bonds of UK financial institutions, both banks and insurers, to underperform other regions, a trend also seen in the equity market.

We saw a sell-off across the UK Gilt curve on Wednesday with yields rising by 4bp at the short end and 11bp at the long end. This took the 10-year Gilt to 4.80% and the 30-year Gilt to 5.35%, with the latter bringing the unwelcome headline that UK borrowing costs are at their highest since the last century.

Spread tightening has left some market participants nervous about fixed income valuations going into 2025, but we think the drivers of recent credit performance are unlikely to weaken materially in the coming months.